Labor Market Effects of Technology Shocks biased toward the Traded Sector

Bertinelli, Luisito and Cardi, Olivier and Restout, Romain (2022) Labor Market Effects of Technology Shocks biased toward the Traded Sector. Journal of International Economics, 138. ISSN 0022-1996

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Our VAR evidence for OECD countries reveals that the non-traded sector alone drives the increase in hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock generates a reallocation of labor toward the non-traded sector which contributes to 35% of the rise in non-traded hours worked. Both labor reallocation and variations in labor income shares are found empirically connected with factor-biased technological change. Our quantitative analysis shows that a two-sector open economy model with flexible prices can reproduce the labor market effects we document empirically once we allow for imperfect mobility of labor, a demand for home-produced traded goods which is elastic enough w.r.t. the terms of trade, and factor-biased technological change. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we estimate increases once we let factor-biased technological change vary between sectors and countries.

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Journal Article
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Journal of International Economics
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17 Aug 2022 16:00
Last Modified:
30 Sep 2022 03:00